Forecasts Back on Track

Corrections continue

DJIA April 2017

The fourth wave correction from the march gap higher coninues, price action is clearly corrective as it bounces up and down with in a rough triangle. This pattern will need to end before we can have any confidence in a forecast. The next significant move should be higher but this corrrection could run all the way down to the green wave 4 on the chart back below 20,000 before a turn higher begins. No actionable trend at present.

FundamentalRecent Fed action is very reminiscent of the FED with Alan Greenspan in control when faced with the market problems of October 1987, for the first time they pressured Banks into lending opened up liquidity and gave a "whatever it takes" promise to the markets. The events became known as Black Monday as the stock market collapsed and real fears of contagion grew. Greenspan was generally applauded for his action at this time however, the experience lead him to hold off raising rates in the coming years. Despite growing evidence of low unemployment and rising GDP the FOMC held of moving on interest rates. When they finally did move it was too late Asset bubbles were everywhere and they all collapsed at once. Apart from the final sentence we are going through a near exact re run. perhaps in 2017 we will be able to accept the final sentence as well.

SentimentSince the Donald Trump victory markets have become exuberant, new all time highs have been posted in the US but not elsewhere. The economic story in the US does not mesh with all time highs, corporate profits are not rising at the same degree as share prices and the world hardly looks a safer and more secure place. The loss of trade deals on both sides of the Atlantic will inevitably lead to lower profits for business. One important sentiment is the advance decline ratio which of late has shown more stocks decreasing in price than increasing.There are many measures of market sentiment, at the moment they are all showing bullish extremes. Investors intelligence and the American Association of Individual Investors both report a two year high on advisers forecasting a continued rise in the Dow.

US Stocks Forecast December 2016

The highs today 8th December have invalidate all of these forecasts, the new highs are Dow theory confirmed giving them extra weight. I don't yet have a valid wave count for these markets and hence no compass, without a compass I will not be trading

Dow Jones Industrial​Forecast

This chart shows my projected future for the DJIA. The indices appears to have just completed the 5th wave of an ending diagonal pattern which began in January 2016. The Diagonal is itself the 5th wave of the Bull market from 2009 which began after the collapse in markets caused by the financial crisis. Looking even longer term the pattern appears to be the end of the third wave in asset prices from the middle ages.​If i am correct we are at the start of the largest bear market in history.The chart shows the path of the Dow throughout 2016The black arrows shows the path I think the market is most likely to take, Green lines are the first two targets. The throw back to the red diagonal bottom is not necessary for the pattern but is very common and consequently is to be expected. ​One note of caution is the divergence between my forecast for US stocks and the Asia stock forecast.

S&P 500 Forecast

The S and P also appears to be in th final leg of its bull market, it may have some time to run and the general pattern is not as clear as the Dow. As a result this is a wait and see with no clear trigger in sight for a trade

Nasdaq

We might have a top in place, a reversal lower before the top marked as 5 would confirm the turn and I will enter the trade if it closes below 2700. The tech heavy Nasdaq is usually the one that suffers the most in a bear market. Individual tech stocks promising new technology are likely to be the ones to suffer most. I am currently short Tesla Motors the largest example of a company promising a great future that probably will not happen.

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